Second thoughts

Can seconded employees ever be regarded as TUPE-transferred? This was the important issue considered in North Wales Training and Enterprise Council Ltd v Astley [2006] UKHL 29 (previously Celtec Ltd v Astley) (from a reference to the European Court of Justice in Case C-478/03). The case arose from a dispute between a civil servant who had been seconded to a Training and Enterprise Council and who subsequently became directly employed by Celtec. Upon the creation of TECs, there was a transfer by government of the management of government funded post-16 vocational training and enterprise activities in England and Wales together with the informations systems and database, some staff and premises. Secondments had begun in 1990 and the last secondment ended in 1996. Astley was seconded from 1990 until 1993 when he joined Celtec. It was common ground that, at some stage, there had been a transfer of an undertaking for the purposes of the Employment Rights Act 1996 and for the purposes of TUPE. The problem, however, was that s 218 of the Act protects the continuity of service of a person employed by the transfer in the undertaking 'at the time of the transfer', while TUPE protects employees employed 'immediately before' the transfer.

The EAT held that the transfer was in 1990, upon the transfer of effective possession. However, the Court of Appeal ruled that, in these exceptional circumstances, the transfer took place over a period of time between 1990 and 1996 and therefore Astley could say that he was employed by the transferor immediately before the transfer. On appeal to the House of Lords, the case was referred to the European Court for an interpretation of the EC Acquired Rights Directive on this point.

However, the European Court (Case C-478/03 [2005] ECR I '“ 4389), unusually disagreeing with the Advocate-General, held that the date of the transfer is the date on which responsibility as an employer for carrying on the business of the unit moves from the transferor to the transferee. That date is a particular point in time that cannot be postponed to another date at the will of the transferor or transferee.

Following the judgment of the ECJ, two possibilities for the employees arose on the return of the case to the House of Lords for the ECJ's decision to be applied. The first was that, since they had consistently argued during the litigation that the transfer took place over a period of time, ending in 1993, they had missed the date of the transfer, which, from the reasoning in the ECJ judgment, appeared to be in 1990. Alternatively, a purposive approach might be applied to the employees' problem to ensure that when they moved from the Department of Employment to the TEC, they retained their continuity of employment. By a majority, the House of Lords adopted a purposive approach, and found in favour of the employees, thus protecting their continuity of employment on their move from the Department of Employment to Celtec. The majority view of their Lordships was not, however, arrived at by universally the same reasoning and, further, the House of Lords' decision contains a strong dissenting opinion by Lord Mance.

When did the transfer take place?

Lord Hope, Lord Bingham and Lord Carswell (three out of the four of the majority) considered that the transfer took place at a particular point in time as indicated by the ECJ, and not over a period. This meant that the transfer took place in 1990 when the responsibility for management of the function of vocational training moved from the Department of Employment to Celtec. In the light of the fact that the employees had throughout argued that the transfer was not on a single date in 1990, but was over a period of time, the employers argued that the employees should not now be allowed to shift their position, choose a different transfer date and take the benefit of it. In answer to the employers, Lord Hope considered that he must apply the principle in Amministrazione delle Finanze dello Stato v Simmenthal SpA (No 2) Case 106/77; [1978] CMLR 263, which held that member states are to take all appropriate measures to ensure fulfilment of the obligations arising out of the Treaty and abstain from any measure that could jeopardise the attainment of those obligations. In his opinion, it was the duty of the national court to give the employees the opportunity, in view of the ECJ's ruling, to change their position and argue they were protected by a transfer date in 1990.

Right to withdraw from arrangement

It was then necessary to consider whether, by remaining with the Civil Service, the employees had, in effect, contracted out of their right to transfer. In paras 37 and 38 of the ECJ's judgment,the court stated as follows:

'[37] '¦implementation of the rights conferred on employees by [the Directive] may not be made subject to the consent of either the transferor or the transferee not to the consent of the employees' representatives or the employees themselves, with the sole reservation, as regards the workers themselves, that, following a decision freely taken by them, they are at liberty, after the transfer not to continue the employment relationship with the new employer '¦

'[38] It follows that with that sole reservation, contracts of employment'¦ are automatically transferred from the transferor to the transferee by the mere fact of the transfer of the undertaking...'

The question therefore was whether the facts of this case fell within this 'sole reservation' [emphasis added] from the general rule that contracts of employment are automatically transferred from the transferor to the transferee on the date of the transfer. Celtec argued that the reservation applied here because the employees freely decided to remain civil servants after the date of the transfer by volunteering for secondment to new TEC. But Lord Hope did not consider that this was the kind of arrangement that the ECJ had in mind. In reaching this conclusion, Lord Hope considered various ECJ decisions, including the court's decision in Celtec itself. It followed from these cases that it was open to an employee whose employment contract would otherwise be transferred automatically from the transferor to the transferee on the date of the transfer of his own free will, to withdraw from this arrangement by declining to enter into employment of the transferee. But this did not, according to Lord Hope, work the other way round. It did not enable effect to be given to an employee's wish to continue to be employed by the transferor while continuing to be employed in the unit to which he had been assigned after his transfer to the transferee. The application of the rule that an employee can withdraw from the arrangement depended on two things: first, that the employee was in a position to choose whether or not to enter the employment of the transferee after the date of the transfer; and second, that he in fact exercised that choice by deciding of his own free will not to do so.

Lord Hope considered that it was plain that the sole reservation referred to by the ECJ in para 37 of its judgment did not apply in this case. The employees were in a position on or after the date of the transfer to choose of their own free will not to work for the TEC. But they did not make that choice. The fact was that they continued to do the same work in the same area offices after the transfer of the undertaking to the TEC, albeit in the belief that they remained in the employment of the Department of Employment. This led inevitably therefore to the conclusion that their employment contracts were transferred automatically to the TEC with continuity of employment on the date of the transfer.

The upshot of the majority of their Lordships' opinions was therefore that the employees in this case transferred to Celtec in 1990 irrespective of the wishes of all of the parties in the litigation. It followed that they had been employees of Celtec since 1990 even though they assumed that between 1990 and 1993 they remained in the employment of the Department of Employment (and indeed remained members of the Civil Service Pension Scheme!).

For Lord Rodger, however, the notion that the transfer took place in 1990, with, at that time, an automatic transfer of employment contracts of employees, irrespective of their beliefs and wishes, was too artificial. He applied the judgment of the ECJ, but considered that the transfer was not in 1990, but in 1993. He was concerned that the outcome in this case achieved by Lords Hope, Bingham and Carswell 'had the effect of obliterating what had actually happened and of putting in its place an entirely fictitious version of events'. He relied on passages in the ECJ decision that the decisive criterion for establishing whether there is a transfer is whether 'a new employer' continues or resumes the operation of the unit in question, retaining its identity. For him, the words 'as employer' were an essential part of the court's conclusion. He considered that the employment tribunal was entitled to reach the view that, in 1990, the TEC had taken over the management of the undertaking, but there was nothing in the tribunal's finding to show that it had done so as 'employer'. The TEC only assumed the position of employer when the secondments came to an end in 1993. When it carried out delivery of training and enterprises after 1993 though, it was by then doing so 'as employer'.

Lord Mance's dissent

Lord Mance dissented. He considered that the employees should have leave to argue their new point that they were transferred in 1990 along with the transfer of the unit of the undertaking, but their argument raised factual matters that required further investigation which would be best done by remitting the case to an employment tribunal for the facts to be investigated and for appropriate findings to be made.

Secondment arrangements after Astley

The majority ruling in Astley raises huge practical issues. In particular, the case casts some doubt on the efficacy of some secondment arrangements in commonly made practice. In the future, employers who wish effectively to second employees in connection with a TUPE transfer where it is genuinely intended by all parties that a transfer of employment does not occur, must look very carefully at the conditions of the so-called 'sole reservation' against transfer of employment outlined by the decision of the ECJ and ensure that these conditions are met.

It might be argued that sophisticated secondment arrangements that occur in, for example, the NHS/PFI Retention of Employment Model (REM) are now at risk. However, an analysis of how that kind of secondment arrangement works in practice may mean that the secondment arrangement in REM still works notwithstanding Astley. As R Davies has remarked ('Contracting Out and the Retention of Employment Model in the National Health Service' (2004) Industrial Law Journal, Vol 33, No 2, 95-120), an employee's right of objection to the transfer under reg 4(7) (previously reg 5(4A))) may help effectively to negate the otherwise automatic transfer of the employment contract from the NHS Trust to the service provider. In practice, therefore, employees who are seconded in NHS/PFI arrangements to work for a service provider while retaining NHS employment sign a reg 4(7) 'opt-out' and enter into a new employment contract known as the 'retained staff employment agreement', with full knowledge of their rights. This may differentiate such arrangements from the facts of Astley itself.